Austria’s Ittner Says Banks Undercapitalized Versus Peers

By Boris Groendahl -
Apr 20, 2011

Austria’s six biggest banks have
less capital and rely more on wholesale funding than their peers
in eastern Europe, and they need to build up their risk buffers,
the central bank’s chief bank supervisor said.

The lenders, which include Erste Group Bank AG (EBS) and
Raiffeisen Bank International AG (RBI), have an average Tier 1 capital
ratio of 9.4 percent, compared with 10.2 percent for 15
international banks active in the region, the central bank’s
Andreas Ittner told journalists in Vienna today. The Austrian
banks have lent 147 percent of their deposits compared with 127
percent for their peers, which means they have to raise more
funding in the market, Ittner said.

“In our view it is necessary to beef up the risk buffers
and improve the capital ratios,” Ittner said. “We appeal to
them to put as much as possible into the strengthening of
capital. We are in permanent talks to the banks about this.”

In total, Austrian banks make 60 percent of their
consolidated net income in this region, and a third of their
exposure is in “higher risk” countries, Ittner said. Profit
originating from eastern Europe increased rapidly before the
financial crisis, and Ittner said the central bank didn’t want
that repeated.

‘Unlimited Growth’

“Banks shouldn’t return to the old growth models but
should aim for a new, sustainable, normality,” he said. “We
don’t want to return to the way things were before: unlimited
growth without appropriate risk buffers.”

Ittner repeated a central bank estimate that the Alpine
nation’s banks need to raise 10 billion euros ($14.5 billion) by
2019 to reach the minimum requirement of 7 percent core Tier 1
capital under the new Basel III banking rules, and to repay 5.9
billion euros in state aid. He also said that the lenders are
aware that the minimum level won’t be sufficient.

“All banks know that if they only hold the minimum level,
they won’t have access to particularly cheap refinancing,”
Ittner said. He said the central bank wouldn’t formally set a
higher limit than the Basel minimum itself, like Switzerland,
the United Kingdom and Sweden have.

Ittner declined to predict if all three Austrian banks
undergoing this year’s European Union stress test would pass the
exercise. “If I knew that already we wouldn’t have to calculate
this,” he said. Apart from Erste and Raiffeisen,
Oesterreichische Volksbanken AG (VBPS) will participate for the first
time in the test.